Opinion

Felix Salmon

How paywalls are evolving

Felix Salmon
Apr 3, 2013 18:48 UTC

Last week, I hypothesized that the publishing industry was going to informally settle on a single management-consultancy company to ask for paywall advice from. That consultancy, having seen everybody’s internal figures, could then tell everybody else what “industry best practice” was. It’s the time-honored management-consultancy m.o., reselling other clients’ confidential information, suitably anonymized, of course, so that everybody learns from everybody else’s successes and failures.

This is a winner-takes-all business: it works best if everybody hires the same consultancy. And now it’s pretty clear which consultancy is going to win: Mather Economics. They say they’ve worked for pretty much everybody, at some point, and that they directly manage some $2 billion of subscription revenues for their clients. And today, fresh off a $1.75 million funding round, the paywall provider MediaPass has announced that it’s going to bake all that Mather knowledge into its own product. Given all the data being generated and analyzed by Mather and MediaPass, it looks like they have a pretty unassailable position in this particular niche.*

So, what do Mather and MediaPass see as the future of paywalls? What is best practice in the industry? Interestingly, as Anthony Ha reports, they’re not particularly enamored with the meter system, despite its high-profile successes at the FT and the NYT.

Although MediaPass supports “metered” systems, [MediaPass president Matt] Mitchell says he sees more potential in creating a specific mix of free and paywalled content, although that mix will differ from site-to-site.

Publishers should think of their free readers as leads who might eventually become paying subscriptions, he says. For example, for a long time Mitchell read ESPN.com for free, but a year ago, he stumbled on a paywalled article that he really wanted to see, and since then he’s been a subscriber.

“What a meter does is give you 10 views free, and on the eleventh you’re asked to subscribe,” Mitchell says. “That’s rolling the dice and gambling that the article I see on the eleventh view is the one I’m willing to pay for.”

It’s worth noting, here, that even the FT and the NYT don’t have “pure” metered systems, where every pageview counts towards the meter. In the early days of paywalls, some content was free, while other content you needed to pay for; the meter, in theory, replaced that system with one where the determination as to whether an article was free or not was a function of how many other articles the reader had read, rather than being a function of the content of the article itself.

There’s always a trade-off, however, and there are certain areas of the FT and NYT websites which are always free and don’t count towards the meter. Finance, interestingly, is one: you can read as much Dealbook and Alphaville as you like without a subscription. And Mather’s Matt Lindsay said that the NYT quietly does the same thing for its entertainment section, during peak season in the fall: there’s a huge amount of advertising demand, and it doesn’t want to put any obstacles in the way of tourists looking to the NYT to work out what shows they want to see.

Talking to Mather and MediaPass, it’s clear that their idea of “best practice” doesn’t rely much on meters at all. They have the numbers, remember: they know what kind of walls are best at maximizing revenues, and what kind of walls just end up turning readers away. And crucially, one of the biggest lessons they’ve learned is that it’s a mistake — at least from a purely financial perspective — to treat all readers equally. Some readers have a much greater propensity to pay than others; ideally, you want to extract a lot of money from those readers, while also allowing the vast majority of your visitors — the ones who will never pay you anything — to still consume your content and view the associated ads.

For instance, it’s often easier to persuade people to subscribe to sports content than to entertainment content, even as it’s easier to sell ads against entertainment content than it is against sports content. So it does make sense to keep entertainment free, and put some kind of paywall around sports.

And although readers hate the kind of extreme opacity practiced by the FT, where there’s basically no rack rate and nobody knows what anybody else is paying, from a revenue prospective it makes a lot of sense. The FT knows quite a lot about its registered readers, so it can be quite effective at charging the highest prices to people with the greatest willingness to pay, while charging much lower rates to readers in, say, India.

That kind of thing can be dangerous, from a PR perspective. Amazon, for instance, got into trouble when it was caught selling the same products at different prices to different customers. But there are other ways of achieving much the same end: you can set a relatively high official price, for instance, and then start showing various special offers to people whom you think might be willing to subscribe if you offer them a discount. No one really minds that.

And certainly it seems to be a good idea to offer a range of subscription lengths, priced so that there’s a strong incentive to go for the longer-dated annual subscription, even if again that means a substantially lower rate on a per-month basis.

I’s not all that hard to tell who’s likely to be willing to subscribe, and who isn’t. Print subscribers, for instance, are much more likely to be willing to pay for a digital subscription than a reader who doesn’t already pay for the print version. And people who visit frequently, and who read a lot of local news, or sports news, are also more likely to subscribe.

In general, the trick is to get as many subscribers as you can — because once a person subscribes, they generally turn out to be surprisingly loyal and price-inelastic. You can keep on charging their credit card, even at steadily-rising rates, and they’re not going to unsubscribe. And then, for the 90% of readers who don’t subscribe, it’s a good idea to find content for them, too. The paywall shouldn’t just be a “pay here or get nothing” option: the “no thanks” button should take you to valuable free content.

That’s why, as NYT spokeswoman Eileen Murphy confirmed to me, the NYT is looking at rolling out a new digital subscription product, priced below the current cheapest option of $3.75 per week. Most NYT readers are understandably reluctant to spend $195 a year on access to a single site, so the NYT might well offer something cheaper, without the full unlimited range of content that subscribers get with the current digital package.

What’s impossible to calculate, of course, is the long-term opportunity cost of driving away people who want to read your content but aren’t willing to pay. MediaPass’s Mitchell told me that in most cases, the act of putting up a paywall is the act of “essentially harvesting revenue from a loyal long-term audience” — people who have been reading the publication for years, and have turned it into a habit they don’t want to give up. That’s fine, as a short-term means of maximizing revenues. But it’s dangerous in terms of getting new loyal readers. Which is one reason why online media startups almost never have paywalls: they want as many people as possible to discover them.

My expectation, then, is that newspaper paywalls will become both increasingly sophisticated and increasingly expensive over time — but that paywalls are not going to migrate very quickly out of the newspaper world and onto the rest of the internet. In a dying industry, the sensible thing to do is to maximize your revenues before you die. Paywalls might well make money for newspapers. But that doesn’t mean that newspapers aren’t dying. Quite the opposite.

*Update: So this is embarrassing. The public press release notwithstanding, it seems that Mather got cold feet about the deal with MediaPass, and is not going to go ahead with it after all. I think Mather still has its longstanding relationship with Press+, the newspaper paywall company, but I’ll look into it and find out.

Update 2: This seems at heart to be a spat between Press+ and MediaPass, with Mather being enjoined from working with both.

COMMENT

Oops, just noticed that the $127 was for The Economist. I get the hard-copy of The Economist and the electronic version is included for free. Just extended the subscription for $69 for another 18 months. That’s a good deal.

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Paywalls rise

Felix Salmon
Mar 27, 2013 15:56 UTC

It’s paywall season right now: the Washington Post, the San Francisco Chronicle, the Telegraph, the Sun — all have recently announced plans to erect paywalls in an attempt to extract subscription revenues from their most loyal online readers. And other paywalls are being tweaked: the NYT paywall is getting less porous, while Andrew Sullivan’s is being tightened up, with a new $2/month option to complement the existing $20/year price point.

The trend here is clear. There is now only one major US newspaper without a paywall of some description, although others have free spin-off sites, like Boston.com or SFGate.com, which act a bit like the outside-the-paywall content on other sites.

There are three big drivers of these decisions. The first is that there’s no hope that online ad revenues will ever grow to replace print ad revenues. They’re barely growing any more, even as they’re still only a small fraction of total ad revenues. The second is that for various reasons, newspapers need to “cling to the mantle of quality at near insane costs”, as Sarah Lacy puts it. If costs are stubbornly high while revenues are shrinking, then the only possible solution is to try to raise new revenues by any means necessary — or go bust.

Finally, there’s the behavioral aspect: newspapers in general, and the NYT in particular, are quite deliberately habituating readers to the idea of paying for content. This was an obvious strategy even before most of the paywalls launched, back in 2010: first get people used to the idea of paying at all, and then, slowly, raise the amount that you ask them to pay over time.

There are an infinite number of points on the spectrum between tip jar and paywall, but there does seem to be a clear move to the right over time, towards less porous and more expensive paywalls. Some paywalls, like the FT’s, are what you might call Metropolitan Museum paywalls, porous in name only. While in theory the FT works on a meter system, giving people a certain number of free articles before asking them to pay, in practice if you want to read an FT article you’re going to be asked to pay — even, annoyingly, if you’re already a subscriber. (I would dearly love a subscription which authenticates based on device rather than on an easy-to-forget and hard-to-enter username/password combo: can’t the FT just see that it’s my phone accessing the site, and let me read anything I want if I’m a subscriber?)

And in general, the more you’re asking for, the more coercive you need to be. At a buck or two a month, loyal readers are happy to support you. At $15 or $20 per month, you need to break out the sticks as well as the carrots.

One of the problems with paywalls is that everybody wants their paywall to be simple and transparent and easy for everybody to understand. But if you do that, you can’t A/B test; you can’t work out empirically what the optimum price is or what the best place to set the meter is. Which is where the raft of different paywalls out there comes in handy.

Here’s my prediction: At some point, the industry is going to informally settle on a single management-consultancy company to ask for paywall advice from. Everybody’s going to use the same company, with the result that the consultancy in question is going to see real internal figures from lots of different newspaper publishers, with lots of different models. The consultancy will then — for a price — tell its clients what “best practice” is in the industry, which is code for “this is the way that the most successful newspapers are doing it”. No one site can easily do A/B testing on its own. But put them all together in the head of a well-connected management consultant, and it becomes much easier to see what’s working and what isn’t.

But all of the paywalls and consultants in the world won’t change the fact that the amount of information freely available on the internet continues to grow very fast, and that the number of people willing to pay for any kind of news online is always going to be a small fraction of the total online news-reading population. As Lacy says, there’s an exciting future for online news — even if the prospects for legacy-burdened newspapers are dim. The paywalls might help with newspapers’ finances. But they’re certainly not going to help make them any more relevant.

COMMENT

The internet is the world’s library, and soon every word ever written and every image ever captured will be within a few keystrokes of everyone’s grasp.

Businesses that wish to build pay to watch peepshows in the dark corners and little used hallways of this library are welcome to try, but I’ll wager a thousand to one on those that will vote against that plan with a simple click of the back button.

Don’t go behind a paywall Felix, or if you do we’ll miss you.

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The NYT paywall arrives

Felix Salmon
Mar 17, 2011 16:30 UTC

The NYT paywall has arrived: it’s going up in Canada today, and then worldwide on March 28. The most comprehensive source for the gritty details is this FAQ, which does things like explain the difference between an item and a pageview. (A slideshow or a multi-page article is one “item,” no matter how many slides it contains.)

The NYT has decided not to make the paywall very cheap and porous in the first instance as people get used to it. $15 for four weeks might be cheap compared to the cost of a print subscription, but $195 per year is still enough money to give readers pause and to drive them elsewhere. And similarly, 20 articles per month is lower than I would have expected at launch.

Rather than take full advantage of their ability to change the numbers over time, the NYT seems to have decided they’re going to launch at the kind of levels they want to see over the long term. Which is a bit weird. Instead, the NYT has sent out an email to its “loyal readers” that they’ll get “a special offer to save on our new digital subscriptions” come March 28. This seems upside-down to me: it’s the loyal readers who are most likely to pay premium rates for digital subscriptions, while everybody else is going to need a special offer to chivvy them along.

This paywall is anything but simple, with dozens of different variables for consumers to try to understand. Start with the price: the website is free, so long as you read fewer than 20 items per month, and so are the apps, so long as you confine yourself to the “Top News” section. You can also read articles for free by going in through a side door. Following links from Twitter or Facebook or Reuters.com should never be a problem, unless and until you try to navigate away from the item that was linked to.

Beyond that, $15 per four-week period gives you access to the website and also its smartphone app, while $20 gives you access to the website also its iPad app. But if you want to read the NYT on both your smartphone and your iPad, you’ll need to buy both digital subscriptions separately, and pay an eye-popping $35 every four weeks. That’s $455 a year.

The message being sent here is weird: that access to the website is worth nothing. Mathematically, if A+B=$15, A+C=$20, and A+B+C=$35, then A=$0.

Meanwhile, at least where I live in New York, a print subscription which gets you the newspaper only on Sundays costs $19.60 every four weeks — and it comes with free access to the web and tablet versions of the newspaper. Which creates the slightly odd proposition that if you want to use the NYT’s iPad app, you’re marginally better off subscribing to the print newspaper on Sundays and throwing it away unread than you are just subscribing to the app on its own.

The pricing structure is also a strong disincentive to use the iPad app at all, of course. If you’re already paying $15 every four weeks to have full access to the website, why on earth would you pay extra just to be able to read the paper on its own dedicated app rather than in Safari? I, for one, prefer the experience of reading nytimes.com on the web on my iPad, rather than reading an iPad app which has no search, no links, no archives, no social recommendations, etc etc. If the NYT wanted to kill any incentive to read and develop its iPad app, it’s going about it the right way.

What does all this mean for the New York Times Company? I can’t see how it’s good. The paywall is certainly being set high enough that a lot of regular readers will not subscribe. These are readers who would normally link to the NYT from their blogs, who would tweet NYT articles, who would post those articles on Facebook, and so on. As a result, not only will traffic from these readers decline, but so will all their referral traffic, too. The NYT makes more than $300 million a year in digital ad revenue, so even a modest decline in pageviews, relative to what the site could have generated sans paywall, can mean many millions of dollars foregone. On top of that, the paywall itself cost somewhere over $40 million to develop.

Against all that, how much revenue will the paywall bring in? A very large number of the paper’s most loyal readers are already print subscribers, and get access to the website at no extra cost. So the new revenues from the paywall will only come from people who read the website a lot but who don’t subscribe in print.

How many of those people are there? Emily Bell reckons that the number of people who’ll even hit the paywall in the first place is only about 5% of the NYT’s 33 million or so unique visitors. That’s 1.6 million people — compare the 1.3 million people who already subscribe to the paper on Sundays. The former is not a perfect superset of the latter, of course, but there’s a big overlap; let’s say that realistically the NYT is going after a universe of no more than 800,000 people that it’s going to ask to subscribe. And let’s be generous and say that 15% of them do so, paying an average of $200 per year apiece. That’s extra revenues of $24 million per year.

$24 million is a minuscule amount for the New York Times company as a whole; it’s dwarfed not only by total revenues but even by those total digital advertising revenues of more than $300 million a year. This is what counts as a major strategic move within the NYT?

As Ken Doctor notes, the Times Select fiasco, which was unceremoniously killed in 2007 to no one’s regret, was bringing in a good $10 million per year. This new paywall is much more elaborate and expensive, and it’s being introduced into a website which is currently something of a cash cow as regards ad revenues.

So by my back-of-the-envelope math, the paywall won’t even cover its own development costs for a good two years, and beyond that will never generate enough money to really make a difference to NYTCo revenues. Maybe that might change if the NYT breaks its promise to offer full website access for free to all print subscribers. But that decision would be fraught in all manner of other ways.

For the time being, though, I just can’t see how this move makes any kind of financial sense for the NYT. The upside is limited; the downside is that it ceases to be the paper of record for the world. Who would take that bet?

Update: Turning upside-down the conventional wisdom that consumers will only pay for financial information and porn, the NYT has decided that Dealbook will remain completely free, outside the paywall, at least for the time being. Which I guess explains why the Business and Dealbook sections are so clearly separated from each other online.

COMMENT

To answers peoples questions- Yes disabling cookies and not signing in allows you to avoid the 20 article limit. I have tried it in Canada by going into Private Browsing mode (or Incognito mode on Chrome) and there are no restrictions on use. They aren’t using IP addresses to identify people. And you can create a mock NyTimes site with links to articles that would bypass the paywall as well, I tried this with a older tumblr account that I linked via proxy. You can also still use news fetchers and other bots to retrieve articles.
The whole paywall seems to suck, and it’s shocking that they spent $30 million on it. This type of thing shouldn’t cost more than a few thousand dollars to implement- its really not difficult coding to do, and there are more holes into it than swiss cheese.

Also I’m bitter that they haven’t announced anything for Kindle subscribers yet. I pay $20 a month for access and I won’t pay dime more. I’m not sure if Amazon has a feature that allows publishers to give codes or accreditation to their subscribers for their own websites (though I remember hearing something about it a while ago), and it would be trivially easy for Amazon to implement if they had to.

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